Today's Edition
NEW YORK/LONDON (REUTERS)
Wall Street opened slightly lower while oil and gold rose as Tuesday marked the fifth day of fighting between Israel and Iran, with the risk of a widening conflict dampening risk appetite in a week also packed with key central bank decisions.
US President Donald Trump urged everyone to evacuate Tehran, cut short his visit to the Group of Seven summit in Canada, and said he wanted a "real end" to the nuclear dispute.
With tensions running high, the Dow Jones Industrial Average fell 0.19%, the S&P 500 fell 0.26%, and the Nasdaq Composite fell 0.36%, following global counterparts lower.
US crude rose 2.26% to $73.39 a barrel and Brent rose to $75.09 per barrel, up 2.54% on the day.
Further raising the stakes, the BOJ, Federal Reserve, Bank of England and Swiss National Bank all meet this week.
Traditional safe-haven assets benefited from the risk-off mood. US Treasuries rose, pushing yields 1.8 basis points lower on the 10-year and 1.6 basis points lower on the 30-year notes. Gold prices edged up 0.14%.
Stocks in Europe sagged, leaving the STOXX 600 down almost 1% on the day and around its lowest in three weeks, while German government bond yields held steady.
No disruptions to crude supply have been reported yet, although news of a collision between two ships in the Gulf of Oman sent another brief jolt through the oil market overnight.
Analysts said volatility levels in financial markets do not appear to reflect the geopolitical tensions.
The VIX volatility index has risen in the last week, but at around 20.8 is well below April's highs above 60 and nowhere near the records, above 80, hit during the 2008 financial crisis.
"This is happening at a point in time where we are less sensitive, first of all the fact being that oil prices are still down year to date, and secondly the macro economy is ... showing that financial markets are relatively resilient at the moment," Bjarne Breinholt Thomsen, head of cross asset strategy at Danske Bank, said in a webinar on Tuesday.
The Federal Reserve is expected to keep rates unchanged on Wednesday, but market participants will be closely following comments from Chair Jerome Powell, who Trump has repeatedly criticised for not lowering interest rates.
Policymakers will release new projections for interest rates, which investors will assess to get a sense of how the committee believes the Trump administration's tariffs could affect growth and inflation.
Tariff negotiations between Japan and the United States on the sidelines of the G7 summit fell short of a breakthrough, while a deal with Britain left unresolved the issue of steel and aluminium duties.
The Bank of Japan, the first major central bank to decide on monetary policy this week, left short-term interest rates unchanged at 0.5% as expected. The central bank said it would slow the pace at which it is unwinding its massive holdings of government bonds to avoid disrupting the market.
The yen weakened 0.12% against the dollar to 144.91.
